- (1.) THIS is a Reference under Section 66 (1) of the Indian income-Tax Act. The short facts are as follows: The assessee is a share-holder in Pure Jambad Collieries (Pvt.) Ltd. (hereinafter referred to as the "said company" ). For the assessment year 1949-50, the Income-Tax Officer made an order under section 23a of the Indian income-tax Act upon the company on march 17, 1954 declaring that Rs. 2,03,933 should be deemed to have been distributed as dividend amongst the share-holders, as on August 31, 1948 relevant for the assessment year 1949-50. On March 24, 1954 the Income-Tax Officer issued a notice under sec. 34 upon the assessee and it is admitted it was received by the assessee after the end of March, 1954, that is to say, after March 31, 1954. It was stated that the assessee's income for the year 1949-50 had escaped assessment and the assessee was directed to file a fresh return in compliance with the said notice. The assessee did not file any return but contended that the notice was invalid and he took other objections. On November 18, 1954 an order was passed by the Income Tax Officer under Sec. 23 (A) read with Sec. 34 that the sum of Rs. 59, 327 j- was included as income from dividends of the said company. The assessee appealed against that assessment to the Appellate Assistant Commissioner and contended, inter alia, that Sec. 34 only contemplated the assessment of a case in which income, profits or gains chargeable to income-tax had escaped assessment for the year, but it could not include income which was "deemed" to have been received as dividend by the assessee by virtue of Sec. 23a (1 ). It was also contended that the assessment under section 34 was barred by limitation. Both the contentions were repelled and the appeal was dismissed on 10th December 1956. It was, inter alia, held that the notice was validly issued under the proviso to sec. 34 (3 ). Against this order, the assessee appealed to the Appellate tribunal, Calcutta. The Appellate tribunal held that the time to be counted for the period of four years must be from the date of the service of the notice and not from the date of the issue of the notice. In this view, the Tribunal was of the opinion that the Appellate Assistant Commissioner was not correct in saying that the notice was validly issued within the meaning of the proviso to Sec. 34 (3 ).
(2.) IT however held that in the present case, the limitation was with respect to a case under Sec. 23a read with section 34. It purported to follow the case of Navin Chandra Mafatlal v. Commissioner of Income Tax, Bombay city 27 I. T. R. 245. It is alleged that according to that decision, the notice was perfectly in order and the assessment had been validly made, because time began to run at the end of the year in which the order under Sec. 23a was made. Thereafter, an application was made under Sec. 66 (1) for a Reference and the following question have been referred. (1) Whether on the facts and in the circumstances of the case, section 34 of the Indian Income-tax Act was applicable to include the proportionate share of the undistributed portion of the assessable income of Pure Jambad Collieries (Private) Ltd. which was to be included in the total income of the assessee by virtue of the order of the Income-tax Officer passed under Section 23a of the Indian income-tax Act in respect of the said company? (2) Whether on the facts and in the circumstances of the case, the proceedings under Section 34 of the Indian Income-tax Act were barred by limitation?" with regard to the first question, learned counsel for the assessee concedes that the question has been decided by the Supreme Court in the case of Sardar Baldev Singh v. Commissioner of Income-tax, (2) A. I. R. (1961)S. C. 787, and must be answered in the affirmative. Learned counsel for the revenue agreed.
(3.) AS regards the second question the first case to be considered is the Bombay decision of Chagla, C. J. in Navin Chandra Mafatlal v. Commissioner of income-tax, Bombay City. It was there held that Sec. 23a of the Income-tax Act is not at all a section under which there can be an assessment or re-assessment. It is only a procedural Section under which, a certain class income is allocated fictionally to the year under assessment. This principle has been explained in the Supreme Court case cited above, where it has been stated that the income is to be "deemed" to have "been in existence at the time mentioned, for the purpose of assessment to tax. In other words, after an order under Sec. 23a is made, it will relate back to the relevant period when the assessment should have been made. There are certain observations in the bombay decision of Navinchandra majatlal (1) (supra) which have created some difficulty with regard to limitation. It almost seems as if, at that stage, Chagla, C. J. was of the opinion that limitation was to be determined upon the footing of the date when the order was made and not the relevant assessment year. This, however, was soon explained by him in a later case, commissioner of Income-Tax v, Robert j. Sas (3) A. I. R. (1959) Bombay 281.;